The Morning Risk Report: The Case for Climate Risk Investing in Trump Era

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The White House’s move this week to roll back policies aimed at reducing carbon-dioxide emissions runs counter to the growing support for shareholders’ proposals asking corporations to account for climate risks in their strategies. The question in governance specialists’ minds is: will reduced regulation weaken shareholders’ resolve?

“You cannot stop the momentum,” said Sacha Sadan, director of corporate governance for Legal & General Investment Management. “We have clients asking about long-term risk, low carbon economy, and that won’t stop.” As an example of that trend, Mr. Sadan cited LGIM’s launch in November 2016, of an index fund that will rank companies based on their environmental standards. HSBC Holdings invested 1.85 billion pounds in the fund, making it the default equity fund for its employees’ defined contribution pension plan. According to the Global Sustainable Investment Alliance, climate change and carbon emissions was “the most significant overall environmental factor” for socially-minded investors in the U.S., drawing allocation of $2.15 trillion in institutional investor assets in the year ended Dec. 31, 2015. Shareholder proposals focusing on the climate risk are also getting more support, even if none got majority approval over board opposition so far. According to Proxy Monitor, an arm of the Manhattan Institute’s Center for Legal Policy that tracks resolutions filed with Fortune 250 companies, 23 of the total 58 environmental-related proposals as of the end of June, 2016, got 26% of the vote, compared with 16% support in 2015 and 14% in the 2006-2015 period. Also, five environmental resolutions received at least 40% support, a record number, said Proxy Monitor.

Whether the White House move will affect that momentum may not be detected until 2018, as the executive order was just introduced, said James Copland, research director of Proxy Monitor. “If institutional investors expect there will be regulatory moves that will create costs for companies, they will be more likely to get in front of that,” said Mr. Copland. “Now those regulatory risks are much reduced,” he said, so it could be that “a reasonable investor” will be less inclined to push its board to spend time on this issue. “The risk of climate change is very far out in the future, so it may not be material for their investing decision,” said Mr. Copland. “The regulatory risk is real, and now that is reduced from the investor’s perspective, so it may be much less compelling to support” proposals focused on climate risk.

Dow, DuPontpush back merger date. Dow Chemical and DuPont Co. said their merger’s end date was being pushed back but added it was still on track as DuPont moved forward with plans to divest assets, a condition of European Union approval for the deal, the WSJ reports. The companies now expect the deal to close in August 2017, after being delayed by intense regulatory scrutiny. When the deal was first announced in Dec. 2015, it was expected to close in the first half of 2016.

EU Commissioner for Competition Margrethe Vestager addresses a press conference on the merger between Dow and DuPont in Brussels on March 27, 2017.

European Pressphoto Agency

Regulators give preliminary ‘no’ to Oncor takeover.NextEra Energy Inc.’s proposed takeover of one of the largest electricity transmissions businesses in the country, Energy Future Holdings Corp.‘s Oncor, is in big trouble with key Texas energy regulators, the WSJ reports. Members of the Public Utility Commission of Texas on Thursday unanimously said they wouldn’t approve the deal as being in the public interest.

Brazil’s former speaker jailed. Eduardo Cunha, Brazil’s former House speaker who orchestrated the impeachment of ex-President Dilma Rousseff last year, was sentenced Thursday to more than 15 years in prison on corruption charges, the wSJ reports. Mr. Cunha, 58 years old, was found guilty of taking about $1.5 million in bribes from a contract by state-controlled oil company Petróleo Brasileiro, or Petrobras, laundering the money, and hiding it in secret bank accounts in Switzerland, Judge Sérgio Moro ruled Thursday.

Korea’s former president held. South Korean authorities arrested former President Park Geun-hye after a court ruled she should be held while prosecutors accusing her of bribery and abuse of power seek an indictment, confining her to a prison cell just three weeks after she was removed from office, the WSJ reports. Ms. Park, 65 years old, will be jailed in the latest chapter of a wide-ranging corruption scandal that has already led to her impeachment and put the country’s most powerful businessman, the de facto head of the Samsung conglomerate, behind bars. Ms. Park has denied wrongdoing.

Credit Suisseraided over tax. Reuters reports Credit Suisse AG’s offices in London, Paris and Amsterdam offices were raided as part of an investigation into the bank’s handling of tax affairs. Dutch authorities said they had made two arrests and seized assets in connection with an investigation into tax evasion but didn’t name the institution involved.

New Finra rule aims to protect seniors. Financial advisers and brokers will gain tools to act on suspected fraud and abuse of senior investors under a new rule issued Thursday by Wall Street’s self-regulator, the WSJ reports. The move by the Financial Industry Regulatory Authority, or Finra, responds to concerns about the exploitation of older adults with cognitive impairments and other vulnerabilities as their ranks grow rapidly due to the aging of baby boomers.

RISK

South Africa enters political crisis. South Africa’s ruling African National Congress lurched deeper into crisis on Friday as top party officials and coalition allies rebelled against President Jacob Zuma’s decision to fire his popular finance minister, deepening rifts in the liberation movement that has ruled Africa’s most industrialized economy since 1994, the WSJ reports. Trade unions and civil society groups called for resistance and street protests against Mr. Zuma’s sweeping cabinet reshuffle that ousted treasury chief Pravin Gordhan. South Africa’s Communist Party, which runs with the ANC in elections, warned citizens to take action to protect state funds against possible looting. Demonstrations were hastily planned for Friday outside the finance ministry in Pretoria and Parliament in Cape Town.

South African finance minister Pravin Gordhan speaking with journalists outside of the High Court in Pretoria on March 28.

Agence France-Presse/Getty Images

EU won’t strike trade deal before Brexit. The European Union won’t agree to any future trade pact with the U.K. until after Britain leaves the bloc and will look to set tight conditions on a divorce deal during coming talks, according to a draft of the bloc’s negotiating guidelines, the WSJ reports. European Council President Donald Tusk sent the guidelines—which must be agreed on at a summit of leaders from the remaining 27 member countries next month—to EU capitals on Friday.